A $1 trillion difference on war funding

From msnbc.com's Tom Curry:As the Congressional Budget Office made clear in comparing the deficit reduction proposals offered by House Speaker John Boehner and Senate Majority Leader Harry Reid, their plans differ in one important way: Reid’s plan would impose a fixed ceiling on funding for the wars in Afghanistan and Iraq and for what CBO calls “similar activities (sometimes referred to as overseas contingency operations or OCO)”, including U.S. military operations in Yemen and Somalia.

Reid’s proposed overseas contingency cap is $127 billion for the fiscal year that starts on Oct. 1 and $450 billion over the 2013-2021.

Boehner’s plan exempts overseas contingency operations from a cap, even though it caps other discretionary spending.

The Reid proposal could reduce Afghanistan/Iraq/OCO outlays by $1 trillion, when measured against the most recent Congressional Budget Office baseline estimate.

(The CBO baseline assumes that discretionary spending grows each year in step with inflation from the amounts provided for the most recent year.)

So what would that $1 trillion amount to? About a 13 percent reduction in the 10-year total of defense spending.

Bigger money and far faster spending growth lies outside Defense Department – in spending on Medicare, Medicare and Social Security – but neither the Reid nor the Boehner plan supplies specifics on how or where that entitlement spending might be curbed or cut.

CBO has forecast that over the next ten years the defense spending – other than military retirement benefits– will grow at an average rate of 2.3 percent a year, while Medicare will grow by nearly 7 percent a year, Medicaid by 9 percent a year and Social Security by nearly 6 percent a year. These growth rates would far outpace what CBO sees as the likely annual growth rate of the economy.

Both Boehner and Reid plans would establish a new congressional committee on deficit reduction.

Reid’s task for that committee: find a way to reduce the budget deficit to 3 percent of gross domestic product (instead of the 9 percent of GDP it was last year.) Boehner’s task for the committee: come up with another $1.8 trillion in deficit reduction by end of November.

That almost certainly some curbs on Medicare, Medicaid and Social Security growth.

But CBO did not attempt to estimate the size of cuts in entitlement spending that the new committee would be able to come up with. No one can predict at this point what proposals that committee might develop, or what Congress might pass.

Hence the bond ratings agencies would have a difficult time assessing how credible any entitlement spending curbs would be.